Retirement Planning 5 years out

JamTomorrow

Being able to realise the efforts of my retirement planning has always felt a long way into the future but after my latest review I think I am on track for work to become optional in just under 5 years time when I will be 50. 

Previously my focus has been on wealth accumulation but now I think I need to focus more on plans over the next 5 years to make work becoming optional a reality.

The main area of uncertainty where I am looking for pointers is how to manage the period between 50 and 57 as during this stage I will be relying on my Cash, P2P & ISA retirement savings before I can access my private pension (I’m assuming this will be 57).

I currently have ~£300k in that bucket of retirement funds and will contribute ~£10k/year over the next 5 years.  This £350k in 5 years time (without investment growth) would have to support a ‘number’ of £30k-£40k per annum for 7 years, so a withdrawal of between £200k-£300k.

Currently the £300k Cash/ISA/P2P investment is treated as part of my overall asset allocation strategy to fund my entire retirement, and not an allocation that is appropriate to specifically fund a 7 year period through to accessing my private pension.  Therefore I am wondering if the time is now right to consider the asset allocation between my pension and other wealth separately and not as one combined fund.

If yes, then should I be moving that £300k fund towards low risk investments / cash and forego investment return in this bucket of retirement funds to eliminate the sequencing risk from equities (for both the 5 year period through to work becoming optional and the 7 year period in which I will drawdown)? 

Is there any recommended reading on what that asset allocation should be and how to taper towards that over the next 5 years?  Without much thought I guess I would want to be close to holding the £350k in cash at the start of the 7 year period to fund £200k-£300k.  That may mean moving some of those funds starting now, eg recycle from P2P into cash, change ISA asset allocation, etc.

Whilst taking this approach could result in losing some investment return I guess that is the price I have to pay if looking to ‘retire’ before I can access my private pension so as to provide more certainty of having the required funds for that 7 year period.

Another potential complexity I am looking for views on is that my mortgage of £215k is due for repayment after I can access my private pension (when I am 60).  I am assuming that, even with no employment income, that I will be able to keep that mortgage and that the lack of employment income wouldn’t result in that mortgage being taken away if I can demonstrate the means to pay the interest?  If I had to repay the £215k once employment income has stopped then work is no longer optional in 5 years time :'(

Finally, is there anything else that I should also be considering when ~5 years out or any steps I should start to take now or over the next couple of years?

Thanks for any pointers on this next stage of my retirement planning journey.

chiefie

If you are a hrt payer bang in as much of this tax allowance into a sipp that you can (as long as you are under LTA)

rebuswad

There is a good 6 part Monevator series on plugging the gap until Pension kick in, worth a read https://monevator.com/how-to-maximise-your-isas-and-sipps-to-reach-financial-independence/ . 
Personally I'm retiring soon and have 10-13ish years until Pensions kick in, and I view those funds as a separate bucket from my pensions. It's about a 40/20/40 allocation, which includes 6 years worth of cash. I've hopefully got a bit more than I should need or I would have more in cash/bonds.

tigerspill

Monitor your spending in detail. Every penny.  This is the only way you will have a starting point from in expenditure.
I recorded every penny in a spreadsheet (and still do).  Takes only i minute each day.  Well worth the effort.  It will give you real confidence as you plan to turn off the income tap.

sheslookinhot

tigerspill said:

Monitor your spending in detail. Every penny.  This is the only way you will have a starting point from in expenditure.
I recorded every penny in a spreadsheet (and still do).  Takes only i minute each day.  Well worth the effort.  It will give you real confidence as you plan to turn off the income tap.

I agree with this. I think you have too much tolerance on your “Number”. 30 or 40k per annum seems too wide a range. Monitoring expenditure would help you decide what is your “real” number. 

Retireinten

How are you planning to pay off your mortgage and at what age?

Bimbly

JamTomorrow said:

Another potential complexity I am looking for views on is that my mortgage of £215k is due for repayment after I can access my private pension (when I am 60).  I am assuming that, even with no employment income, that I will be able to keep that mortgage and that the lack of employment income wouldn’t result in that mortgage being taken away if I can demonstrate the means to pay the interest? 

You can get mortgages to run until you're 75 (some places, even 85). I would be looking at this before you stop salaried employment.

Secret2ndAccount

Your mortgage is an agreement for you to make monthly repayments, then one big repayment at some agreed date. As long as you keep making the monthly payments they can't come and demand their money back just because you stop work.

You don't say much about your private pension. Are we able to assume that this, plus the state pension, will give you the 30-40k, index linked, that you require, for life, and that it will also provide a lump sum sufficient to clear the mortgage?

If so, then we are left with just your question about asset allocation. As you note, you have enough in the pot to meet your goals, so it's only a question of balancing growth vs preservation. Different people will give you different answers: it entirely depends on your attitude to risk. I note that you are happy with P2P lending, so you are willing to take on some risk. I would also point out that some of the funds in question will still be invested 12 years from now. Therefore, in my opinion, it would be wrong to switch everything to cash or safe, fixed income products so early. Perhaps you could cease new investments in P2P (which I am guessing is your highest risk product), and gradually move those returns to cash/ISA, using up your ISA allowance each year, and keeping that money invested.

Don't know where Xylophone is tonight, but he will be along in a minute to ask you Have you checked your State Pension forecast?

NedS

I'm in a somewhat similar position, planning to retire in around 5 years, with a 9 year window before state pension and DB pensions kick in, and am grappling with the same questions as you, as whether to ring fence the funds I will need for that specific period.

If you are unable to access other funds/investments (e.g, pensions) during this period, then I think you are right to ring fence these investments for that period of time. How much risk you are able to take will depend on how flexible your plans are and your investment horizon (5-12 years in your case). I would be looking at keeping 3-5 years in cash or near cash (premium bonds maybe, or other interest paying savings) with the rest in low risk investments such as wealth preservation funds, or maybe short dated bonds with an expiry date around the time you need the cash. So you could be fully invested now, and start moving to a cash/near cash position over the next 5 years.

Presumably, if you stayed invested in higher risk investments, and markets crashed a year before your planned retirement, you would have the flexibility to carry on working if necessary? That gives you the capacity to take on some extra risk if you are so inclined, but once you make the decision to go, you have some headroom in your figures, but not a huge amount. If you have the flexibility to reign spending in to around £30k/year, that only requires £210k from your nominal £350k pot (which could conceivably be anywhere between £150k and £500k in 5 years time).

Secret2ndAccount

sheslookinhot said:

tigerspill said:

Monitor your spending in detail. Every penny.  This is the only way you will have a starting point from in expenditure.
I recorded every penny in a spreadsheet (and still do).  Takes only i minute each day.  Well worth the effort.  It will give you real confidence as you plan to turn off the income tap.

I agree with this. I think you have too much tolerance on your “Number”. 30 or 40k per annum seems too wide a range. Monitoring expenditure would help you decide what is your “real” number. 

Why is it so important to nail down your spending to the nearest tenner? Your investments could easily grow 20% more, or 20% less than expected over the next five years. Most of us could easily spend 20% more, and could (less easily) spend 20% less if we needed to.

Personally I have no idea how much I will spend in the next 12 mths.

NedS

Secret2ndAccount said:

sheslookinhot said:

tigerspill said:

Monitor your spending in detail. Every penny.  This is the only way you will have a starting point from in expenditure.
I recorded every penny in a spreadsheet (and still do).  Takes only i minute each day.  Well worth the effort.  It will give you real confidence as you plan to turn off the income tap.

I agree with this. I think you have too much tolerance on your “Number”. 30 or 40k per annum seems too wide a range. Monitoring expenditure would help you decide what is your “real” number. 

Why is it so important to nail down your spending to the nearest tenner? Your investments could easily grow 20% more, or 20% less than expected over the next five years. Most of us could easily spend 20% more, and could (less easily) spend 20% less if we needed to.

Personally I have no idea how much I will spend in the next 12 mths.

How can you possibly begin to plan how much you will need in retirement if you really have no idea how much you spend?

It's useful to have a clear idea of what your essential living costs are (non-discretionary spending) and how much you spend (or are likely to spend) on extras / discretionary spending. Then you know to what extent you could tighten your belt in a crisis without going under, and how much you need for a comfortable retirement lifestyle. This year has been an excellent opportunity for us to conduct such an exercise as Covid has forced us to cut right back on spending with very few discretionary items this year, so now we have a pretty clear idea what our non-discretionary spending will be for retirement, and to what extent we can tighten our belts if required in a crisis. Everything else is just varying degrees of jam.